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News

As I was thinking of a way to write this newsletter I have often found myself thinking of the Beatle’s 1970 song The Long and Winding Road. I really don’t know why as I have never been an especially big Beatles fan (though I certainly acknowledge their greatness). Hopefully the following paragraphs will help make the connection. For anyone who has read my updates before they know that I do like to, and in fact tend to jump around with my metaphors when discussing current events in the Christmas tree business in general and McKenzie Farms LLC specifically. We’ll see if this one works.

I have always tried to give our readers a feel for our history as a company, our successes and challenges as an industry, and a feel for what the future might look like. For the purposes of this update, I would like to focus on all three a bit of a prelude to announcing the future direction of McKenzie Farms LLC.

Our industry has seen many changes in the last twenty plus years; this newsletter has discussed them at length. By way of summary, ours is a seasonal industry prone to boom and bust cycles. When prices have been high new players have entered the industry, when prices have been low, attrition has been rampant. The Christmas tree industry has been guilty of very poor business acumen at times. Truth be told, farmers don’t usually make the best businessmen…

Our industry is greatly affected by the vagaries of the transportation, labor, and weather realities during a given harvest season. There is little we can do about the weather (the summer of 2018 is on the books as the second hottest on record). We do, however, get that constant moisture that makes the whole industry possible! There have been times when freight rates were reasonable, and labor was plentiful. The current trends seem to suggest major headwinds rather than tailwinds for the foreseeable future. Additionally, as an industry, we have been introduced to pricing / payment models that have moved to a consignment model (2006). Finally, we have seen a demographic shift that has proven less favorable for fresh cut Christmas trees and more favorable for artificial choices. And, never forget that it takes 6-10 years to bring our product to market! That and that alone makes this an industry that should not be attempted by the faint of heart. Deep pockets and an abundance of patience are strongly recommended…

From our humble beginnings back in 1990 as Signature Trees we have seen / experienced / survived it all. It has been a journey of discovery to say the least (you might say a “long and winding road”). The days stretch into weeks and the weeks stretch into months and years, and before you know it, 28 years have come and gone. Incidentally, I think this is what the Beatle’s were trying to say as well (discussion for another day!).

Because of these challenges, several very predictable things have happened. First, the number of large scale farming operations (100 acres or more) have declined dramatically in the last five years; I have seen numbers as high as 75% in terms of attrition! It is only possible to sell a tree for less than it costs to grow, harvest, and ship it for so long before the bottom finally falls out. Second, for the survivors, we have been the beneficiaries of supply / demand dynamics. Yes, it is very possible to make the argument that demand is declining. In fact, I would support that contention wholeheartedly. However, and this is a very big HOWEVER supplies are declining at a faster rate. Remember it takes 6-10 years to bring a Christmas tree to market (variance based on size, species, and weather conditions). Finally, as has been predicted by our founder and my dad McKenzie Cook, long before anyone thought such a radical concept was possible, consolidation would be used as a tool to gain inventory, attain economies of scale, and leverage one’s ability to serve the markets with the highest potential for total return.

There have been several large-scale acquisitions in the last several years and there have been late stage discussions relating to large-scale acquisitions (that didn’t work out) in the last several years as well. Well, I must say those have been a nice warm up to the transaction that we are pleased to announce. The largest in the history of the Christmas Tree industry by a wide margin.

Press Release- Sept 14th, 2018

McKenzie Farms LLC and Kirbycon LLC- Cubby Steinhart (Happy Holiday Trees) are pleased to announce a financial arrangement that has come about after many years of close relations between the two companies. This long-standing relationship has now culminated in a unique partnership designed to better serve the needs of the customer in an environment of extreme shortage, changing dynamics, and industry consolidation.

Kirbycon LLC DBA Happy Holiday Trees West will be purchasing a controlling interest in McKenzie Farms immediately, with a stated intent to purchase the remaining equity over the next several years. Key McKenzie Farms LLC management will remain in place indefinitely.

The new company and Happy Holiday Trees East plan to operate in an independent, yet mutually beneficial fashion and capitalize on synergies and efficiencies inherent in a multi-regional operation. The management teams of both companies are looking to retain an important sense of continuity and synergy now and in subsequent years.

McKenzie “Ken” Cook, viewed as a legendary figure in the world of multiple West Coast agricultural pursuits, and Conrad “Cubby” Steinhart a long time veteran of the East Coast Christmas tree business in numerous capacities (principle owners of the respective companies) see the purchase as a once in a lifetime opportunity to achieve managerial, inventorial, and financial economies of scale that will allow for increased opportunities for the new entity.

“The banking relationship with Northwest Farm Credit will remain in force as will the numerous relationships in the production, transportation, and harvesting community that have greatly helped McKenzie Farms LLC become the company that we are today. These are the foundational relationships on which the new company depends, and we look forward to a great working relationship during the transition.”

January in the Christmas tree business is surprisingly busy. I am often asked what we do once the season is over with the often unspoken assumption that there is little to do after the extreme demands of November and December. Well, there is actually a great deal to do as we deal with the aftermath of what just occurred which includes such activities as managing our account’s receivables, auditing our results, field clean up, field preparation, conducting customer meetings, and a whole host of additional tasks both large and small.

All and all, 2017 will be viewed as a modestly successful one as prices were up, sales were decent, and costs were somewhat manageable (despite ominous clouds on the horizon relative to labor and freight costs). Despite the sanguine feel that is part of the mix when evaluating 2017, it is always important to remember that the devil always resides in the details. Yes, prices were up and that is a very good and proper fact as it has allowed the surviving Christmas tree growers to work toward profitability, albeit modest. There were once many and now there are few. As an industry, we have lost roughly 25% of our 100 acre plus participants and approximately 75% of our smaller 100 acre and less operations in recent years and the accompanying contraction in supply has led to an increase in pricing to meet current demand. For the Big Box retailers, 2017 was a mixed bag as unit sales were modestly down and total dollars were up slightly as a result of higher retails. This sounds a little like 2016 with the caveat that lower unit sales were a given in light of the fact that Big Box buyers were quite cautious in 2017. A bit of a head scratcher to me in light of the fact that large numbers of independent retailers are either gone, have downsized, and/or have settled for varieties of trees that have not been their bread and butter in recent years. Reasons given for the cautious stance include worry over higher retails, strong artificial tree sales, an internal commitment to better margins and less shrink, and a desire to help growers who operate within a consignment model. The final answer is probably a mix of all of these factors, yet we know that an unwillingness to remain aggressive will eventually lead to a dramatic decrease in sales. Guaranteed…

The Christmas tree shortage story received noticeable media coverage in 2017. I read several articles on the subject during the season and I must say, I found the analysis to be highly inaccurate and downright misleading. I read several articles stating that the economic downturn of 2008 led to diminishing demand for Christmas trees. If that thesis were true, which it isn’t, one would expect a huge surge in demand as the economy has strengthened in recent years? Instead demand has remained fairly static while slightly contracting in the period from 2008-2017. As a matter of fact, Christmas trees are one of the most economically insensitive “products” on the planet. When times are tough, consumers who desire to buy a real Christmas tree continue to do so. Total dollars spent can certainly be affected but the ACTUAL purchase is virtually unaffected. The Christmas tree shortage is a direct byproduct of poor business practices conducted by Christmas tree growers. Our most recent oversupply cycle (growers chasing price without customers to meet that increased supply) led directly to a situation in which Christmas tree growers sold trees at prices LESS that the costs associated with growing, harvesting, and shipping a Christmas tree… This in turn led to huge attrition within the industry which included the elimination of millions of trees that were simply cut and burned in the fields as the money to care for the trees evaporated. Remember, it takes 8-10 years to bring a tree to market and the business is capital intensive during the maturation process. The survivors have learned from the past (hopefully) and are committed to not repeating a cycle of profitless business. We’ll see, stay tuned…

Having said all of this, demographics have changed. Don’t believe me? Just ask Toys R Us, Harley Davidson, Sears, Blockbuster, the NFL and a whole host of companies that have found themselves on the wrong side of the Millennial’s preference spectrum. Think it can’t happen to Christmas trees? Think again… Artificial Christmas tree sales were reported as robust once again in 2017 (double digit increases). A recent article in USA (12/11/17) suggests that the sky is falling and includes the following cryptic quote.

“Of the estimated 95 million American households with Christmas trees this year, 81% will display fake ones, according to an American Christmas Tree Association survey conducted by Nielsen.” https://www.usatoday.com/story/money/2017/12/11/fake-christmas-trees-more-popular-real-people-year/924980001/ (copy and paste)

Other data has suggested that roughly six in ten households display a fake tree, approximately two in ten have no tree, and the real tree accounts for two in ten as well. We can all dispute the data until we are blue in the face. What we do know, and I feel this is very difficult to dispute is that Millennials (1982-2000) are the up and coming “alpha dog consumer” on the horizon and the Baby Boomer Generation (1945-1964) is starting to wane in importance as an impactful consumer of the future. It has been projected that by 2025, 75% of the workforce will be Millennials. It doesn’t require an advanced degree in economic demographics to understand that this generation’s endorsement of your given good or service is absolutely essential to future success or failure.

Now on to the perplexing part… While we know that Baby Boomers will continue to wane as viable real Christmas tree buyers in the years to come. We also know that the Millennial generation is a huge proponent of a “Green” lifestyle that includes a preference for organic foods, electric cars, and real Christmas trees. Oh wait, I made the last one up BUT it SHOULD be on the list. Instead, we hear “that the next wave of young families is not embracing the tradition of a real Christmas tree in the home as much as the previous generation.” This is a loaded statement that has both complex and simple interpretations. For now let’s stick with the simple… This would seem to suggest one of several conclusions. Either they are purchasing no tree or they are purchasing an artificial tree. If in fact they are purchasing an artificial tree it means that we as an industry have done an embarrassingly terrible job of convincing a group that have strongly ingrained natural biases toward “Green” that an artificial tree is the EXACT OPPOSITE of the kind of choice this generation makes in EVERY OTHER aspect of their consumer behavior!!! Let that sink in. They have every reason in the world to buy our product and we have let them slip away. Talk about snatching defeat from the jaws of victory!!! And, apparently price is not a huge deterrent despite all the hand wringing over rising retails. Take a look at the organic food section on your next trip for groceries if you need convincing.

We are allowing the artificial tree to literally get away with murder as it would be the bane of all ecologically sensitive people if the facts were revealed rather than distorted. Most are manufactured in China (Enemy #1 of the environmentally conscious crowd as they are the world’s top polluter), contain high amounts of toxic lead, are not biodegradable, and are (hello), ARTIFICIAL! Contrast that with a choice that produces oxygen while absorbing carbon dioxide, is completely biodegradable, and is (hello), REAL. Instead we have been painted as rapacious opportunists who cut down the forests and hurt the environment. How we have allowed ourselves to lose this war to date is both shameful and embarrassing. It is a battle that we should not only win but dominate. There is a lot at stake here in the years to come; it is a fight we cannot afford to lose if we expect to survive and thrive in the future. As an industry we have attempted to tell the story. The quality of the story is excellent, the delivery has been less than adequate and that needs to change. Double digit sales growth (artificial) contrasted with slight declines (real) is a recipe for disaster if we fail to get aggressive and smart in a big hurry.

As we set our sights on the beginning of spring and prepare to watch the months pass by with their usual alarming speed, we felt it would be a good time to take stock of some interesting themes both old and new.

The winter just completed in the Great Pacific Northwest has included record levels of rain, snow, and ice. Had this weather happened during our Harvest Season which begins in late October (believe it or not) and ends (in terms of shipping trees) around mid-December, our evaluation of 2016 would have been a far different tale; we dodged a bullet though for most of us lingering memories of “Winter 2017” will not be soon forgotten. And, for good measure, spring is starting out exceeding wet and unseasonably cool… There will be a year in which the onset of winter isn’t quite so accommodating and polite. Fingers crossed as always… Read More

The New Year has dawned in our little corner of the world affectionately known as The Great Pacific Northwest; we have had a chance to sit back a little (watch the record snow-- thankful that it didn’t happen earlier) and reflect on the world of Christmas trees. A perfect time to evaluate the thoughts we had heading into Harvest 2016 and the realities we must deal with in 2017 and well beyond. Read More

What a difference a few months can make. For those who have read our recent newsletters, the themes have been quite consistent. Christmas tree supplies have gone from a glut to an undersupply situation; Christmas tree prices are on the rise and there are far fewer current players able to reap the potential benefits. Moreover, and very importantly, a quick recovery is certainly not imminent as the Christmas tree business is one fraught with perils such as a long growing cycle, a seedling shortage, a labor shortage, and a whole host of risks associated with farming in general. No new participants are standing in line to join an industry that has no payday for 6-10 years and a checkered past. Read More

As spring meets summer in the great Pacific Northwest change is in the air. The days are getting longer, the temperatures are slowly rising, the annual ritual of planting has come to an end, and the phone is starting to ring more often. It is an inflection point which marks the beginning of The Beginning in the world of a Christmas tree company. Read More

As I sit at my desk penning this update, I take note of the fact that the concept of spring is an interesting one in The Pacific Northwest. Cold east winds, rain, and hail are probably my main reminders that spring is in the air; not surprisingly, many people head for warmer climates even during this time of year. Having said all of that, I still must say that spring in this part of the country has its share of very special, uniquely Oregon, beautiful moments. Kind of an arcane, esoteric realization, yet a little secret that most Oregonians know beyond a doubt… Read More

Many years ago someone once told me that the trick to writing well was quite simple.

“Tell them what you are going to tell them, tell them, and then tell them what you’ve told them.” Those simple words really pack a punch; couple this with the fact that I majored in History while at the University of California at Santa Barbara (put that in for fellow Gaucho Ken Koenig) and you will, hopefully understand my line of reasoning and message. Hard to understand the present without looking to the past, as well as acknowledging the cards we’ve been dealt (for better or worse)… Read More

As we reach the eleventh hour and the Christmas Tree Season is upon us, we thought it would be helpful if we summarized some of the pertinent themes as we look forward while taking a peek back over our collective shoulders. Read More

I can still remember the first time I visited Oregon as an adult. I was working in the stock brokerage business out of Southern California at the time (the early 1990’s, I believe) and I remember a few things pretty distinctly. First, the stock markets were tanking (as they almost always did whenever I attempted a summer vacation!), I was blown away by the beauty of the area (I had no idea that so many shades of green actually existed) and I couldn’t believe the really hot temperatures. I had always thought Oregon was a temperate place! Read More